Finding a home loan that requires no down payment might seem like a difficult task, but if you are a veteran it is made much easier for you. The VA loan is a zero down payment home loan option for you as long as you meet the entitlement requirements from the VA. With no down payment necessary, it can be very easy for you to qualify for a home loan with the VA’s flexible guidelines.
Who is Eligible?
The requirements for eligibility for the VA loan are simple and most members of any military branch are eligible. Even spouses of those that died during active duty are eligible in most cases. Typically you need 6 months of service in order to qualify for the program unless you are in the National Guard or Reserves, in which case you have to wait until you have 6 years of service unless you are called to active duty and have 6 months and 1 day of active service. If you serve during a period of war, you are only required to serve 90 days of active duty before you receive VA loan eligibility.
In order to prove that you are eligible for the zero down payment home that the VA offers, you must obtain your Certificate of Eligibility. Typically the lender can obtain this document for you automatically with a little identifying information from you. If you know you qualify based on your time served, the lender can help you speed up the process to get your loan approved.
The Reason for the Zero Down Payment Option
It might seem rather risky for lenders to offer borrowers a zero down payment option when financing a new home, but the VA guarantee makes up for that risk. You can think of the VA guarantee as the replacement for the down payment. The money most lenders would hang onto in the event that a borrower were to default on their loan that comes in the form of a down payment for most loans, comes from the government.
The VA guarantees 25% of the maximum loan amount for your area. For example, if your area’s maximum loan amount was $144,000, the VA would guarantee $36,000, which is probably more than you would put down if you were to put anything down on the home.
Qualifying for the Loan
You might think that qualifying for a zero down payment loan would be much more difficult than qualifying for any other loan, but it is usually easier. The VA only requires the following:
- Meet the disposable income requirements for your area as determined by the VA (the money you have left over after meeting your monthly obligations)
- Have a certificate of eligibility
- Typically have a score higher than 620, although the VA does not enforce this
- Certify that you will occupy the property as your primary residence
- Purchase an eligible single-family, condo, PUD, or multiple unit property (you must live in the multi-unit)
- Have a debt-to-income ratio lower than 41 percent
Most of the requirements for the VA loan are not set by the VA themselves; the lenders impose these requirements to minimize their risks. Because the VA guarantees the loans, however, lenders are able to be a bit more flexible with their requirements.
The zero down payment loan for veterans is the most common way for veterans to finance a home. Even veterans that wish to put money down use this program in order to reap the benefits of flexibility in qualifying for the loan. As an added benefit, borrowers have the ability to refinance the loan down the road if rates get lower with little to no verification required, enabling them to save even more money down the road.